Compulsory and Voluntary Excess in Motor Insurance

What is Motor Insurance Excess?

The motor insurance excess is the amount you are required to pay at the time of claiming your policy. Motor insurance companies enable their customers to share a part of the risk linked with the plan. Known as the “excess” or “deductible,” this is a pre-determined value of the claim which would be borne by you as a policyholder. So, when the claim occurs all you need to do is pay this excess amount, and the remaining amount would be taken care of by the motor insurance company.

Is that all about Motor Insurance Excess?

No!

There is a lot more to it.

Let’s dive deep into it…

There are mainly two types of excess – Compulsory excess & Voluntary excess.

What is a Compulsory Deductible?

The compulsory deductible component is also called as a mandatory excess, and the insurance regulator mandates the rates. So, every motor insurance or two-wheeler insurance policy has this clause.

Now let us understand what it is.

Compulsory Excess is that part of the claim amount which you will have to bear out of your pocket. For cars which are not exceeding 1500 CC, the rate is fixed at thousand rupees. For car exceeding 1500 CC rate is set at 2000 rupees. Moreover, for two-wheelers, the amount is rupees 100.

Let us understand this with the help of an example

Suppose you own a vehicle of 1499 CC. To your biggest nightmare, you accidently bump into another car. And hey, your car suffers a dent for which the repair amount sums up to Rs.9,000. . In such a scenario, you will only get Rs.8,000 from your insurance company, and Rs.1,000 will have to be borne by you.

This has taken place mainly to discourage small claims and to encourage good driving behaviour.

Okay, that was all about Compulsory Deductible or Compulsory Excess.

But, what is voluntary deductible?

It is also called the voluntary excess. This is the component which you agree to pay from your pocket additional to the compulsory deductible.

Why should you voluntarily opt for deductibles?

This is a question which would be rising in your mind. Why should we opt for a voluntary excess when it is already compulsory excess obligatory for motor insurance companies? The idea is simple.

The voluntary deductibles decrease the amount of policy premium.

The higher the voluntary excess you opt for, the higher is the discount you get on the motor insurance premium.

Compulsory excess does not provide any premium discounts.

Voluntary excess is over and above the compulsory deductibles on your motor insurance policy. Depending on your paying capacity and budget, you can choose the voluntary access from zero to a suitable amount.

You should choose to opt for voluntary excess only when you are confident about your financial conditions. You need to be prepared to raise money on your part of the excess of motor insurance policy.

In case you don’t file a claim, you enjoy lower premium, but if you have to file a claim, you have to pay on your part of the claim as agreed.

However, the amount of excess varies depending on various factors. The excess varies according to the policy that you select. You may also have a provision to adjust the excess amount.

Additionally, if you are a young and inexperienced driver, you may require to pay a higher excess. This is because as a young and inexperienced driver, you fall into a higher risk category.

But, how does voluntary excess work?

Voluntary excess work differently. It allows you to set the excess amount you are willing to pay. When you are purchasing motor insurance, it’s worth to look at how voluntary deductible affects your insurance cost. However, remember that, if you make a claim, you have to pay both voluntary and compulsory excess.

How does excess amount affect the premium you pay?

The excess amount is the contribution that you pay towards a claim. Therefore, if you are willing to contribute at the time of claim, you will enjoy the benefit of paying a lower premium during the motor insurance period. A lower excess means you would pay a higher premium and vice versa.

Should you increase voluntary excess?

Voluntary excess is like a gamble. It is up to you how less likely you are to make a claim. The higher amount to choose to pay for excess, the higher the bet.

If you consider yourself to be a careful driver and you are confident enough not to involve in an accident, you might take this risk. In some cases, where you have a minor accident, your total excess might be equal to or more than the cost of repairing the car. In such case, you have to decide whether it’s worth claiming in your motor insurance at all. However, it is advisable to notify your insurer about the accident you had, even if you don’t claim.

Excess actually protects you

An excess protects you from paying a larger fund by making you pay a particular portion of the claim up front. Having an excess is a protection to ensure that you will have the money when you need to claim for the higher amount.

You can refuse to pay the excess completely, but that would mean you will end up paying more for your motor insurance premium. Thus, your motor insurance excess also helps to keep your monthly premiums down. You can get effective discounts on your premium by agreeing to contribute to a certain amount of your claim.

Insurance companies give you a choice of taking excess or paying higher premiums. It is up to you which you would prefer. Here, the fundamental thing is to understand why you pay the excess, to make sound financial decisions.